The 11 Different Stock Market Sectors

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Tiger Wolf Capital: Stock Sectors

What Are Stocks?

Stocks (also known as equities) are a type of security that represents the ownership of a business. This ownership entitles the stockholder to a
the proportion of the corporation’s assets and profits equal to how much of the stock they own

  • Individual units of stock are called “shares”

Shares of stock are bought and sold on exchange platforms such as the New York Stock Exchange (NYSE) or NASDAQ through brokerage
platforms, such as:

  • TD Ameritrade
  • Webull
  • Robinhood

Stock Market Sectors

  • Market sectors are groupings of stocks based on the main characteristics or function of the companies they represent
  • Stocks are categorized into sectors to simplify the comparison of companies with similar business models
  • Sectors also make it easier to compare which stocks are making the most money, This helps investors make decisions in regard to their future investments
  • The 11 market sectors were originally classified by Standard and Poor’s (S&P) and Morgan Stanley based on the primary business activity of a company

The Eleven Sectors

The Financial Sector

The financial sector is a section of the economy made up of firms and
institutions that provide financial services to commercial and retail
customers.

  • These include banks, investment companies, insurance companies, and real estate firms.
  • The financial sector generates a good portion of its revenue from loans and mortgages and thrives in a low-interest-rate environment.
  • A strong financial sector is a sign of a healthy economy.
  • This sector makes up approx. 12% of the S and P 500, one of the largest sectors.
  • The largest companies within the financial sector are some of the most recognizable banking institutions in the world.

Investing in the Financial Stock Sector

Some of the positive factors that affect the financial sector include:

  • Moderately rising interest rates
  • Reduced regulation
  • Low consumer debt levels

Conversely, investors should consider some of the negative factors that affect this sector as well:

  • Rapid interest rate increases
  • Yield curve flattening
  • Stricter and increased legislation

Key Leaders in the Financial Sector :
JP Morgan ($JPM)
Citigroup ($C)
Goldman Sachs ($GS)
BlackRock ($BLK)

ETFs :

Financial Select Sector SPDR Fund ($XLF)
Direxion Daily Financial Bull 3X Shares ($FAS)

Investing in the Financial Stock Sector

A few industries in these sectors are the following :

  1. Banks – financial institutions licensed to receive deposits and make loans. An example of this would be JP Morgan, Bank of America, Wells Fargo Citigroup Goldman Sachs.
  2. Insurance Companies – sells coverage designed to help protect clients against loss, theft, or damage to them or their property, by sharing risk amongst a large group of people. Examples of this include: Metlife, Prudential, and Travelers Company
  3. Capital Markets – firms involved in buying and selling debt and equities. They use investors’ accumulated wealth to increase productivity growth, these are long-term investment firms. Examples of capital markets: Morgan Stanley, BlackRock, Goldman Sachs, and UBS Group

The Energy Sector

  1. The energy sector is comprised of companies whose primary business activities relate to Producing or supplying energy through
    • Development and refinement of oil and gas
    • Research and development of renewable energy
  2. Many investors believe renewable and alternative energy sources will play an important role in the future
    • The growing demand for electric cars is a major catalyst of this change
  3. The energy sector does well during times of high oil and gas prices, which are normally during times of economic expansion

 

Pros:

  1. Energy is a necessity and offers a unique peace of mind to investors
  2. Value swings tend to be foreseeable
    • Since energy is highly linked to supply and demand, it is relatively easy to predict falls and spikes in share price
  3. Many energy companies offer impressive dividend yields

Cons:

  1. Traditional energy stocks are on the decline
    • With an increase in renewable energy, many established crude oil companies are facing challenges
  2. The energy sector is heavily affected by the global supply chain

 

Key Leaders :

BP ($BP)

ExxonMobil ($XOM)

Chevron ($CVX)

Enterprise Product

Partners ($EPD)

ETFs :

Energy Select Sector

SPDR Fund ($XLE)

iShares Global Clean

Energy ($ICLN)

 

The Basic Materials Sector

  1. The basic materials sector is comprised of businesses engaged in the discovery, development, and processing of raw materials
    • These companies are involved in the mining and refining of metal, development of chemical products, and production of forestry products.
  2. The most common materials within the sector are mined products, such as ores and metals, and forestry products, such as lumber, natural gas, crude oil, and coal
  3. Many of these companies provide the necessities for construction and development
  4. These companies and their stocks are sensitive to changes in the business cycle
    • Thrive when the economy is strong
    • Decline when the economy is weak

 

Investing in the Basic Materials Sector

Pros:

  • The basic materials sector is attractive for those looking to hedge* their portfolio conservatively
  • The demand for these materials will always exist and the supply of them is a direct influence on other industries
  • The cyclical nature of this sector allows investors to feel confident in their entry and exit points

Cons:

  • Slow growth, little volatility
  • Low risk = low reward

 

Key Leaders in the basic material sector:

  • Sherwin-Williams ($SHW)
  • International Paper Inc ($IP)
  • Ecolab ($ECL)
  • Huntsman Corp. ($HUN)
  • Steel Dynamics Inc. ($STLD)

ETF for the basic material sector:

  • Materials Select Sector SPDR Fund ($XLB)
  • Invesco DWA Basic Materials
  • Momentum ($PYZ)

 The Industrial Goods Sector

  1. The industrial goods sector consists of companies who produce capital goods used in construction and manufacturing.
  2. They make and sell machinery, equipment, and supplies that are used to produce goods – rather than selling the goods directly.
  3. Performance is largely driven by supply and demand for construction and engineering
    1. Increases with economic growth
    2. Declines during economic recession

Different industries within the industrial goods sector

  1. Aerospace
  2. Defense
  3. Industrial machinery
  4. Tools and lumber production
  5. Construction
  6. Waste Management
  7. Manufactured Housing
  8. Cement and Metal Fabrication

Investing in Industrial Goods Sector

  1. Investors generally value the industrial goods sector for dividends and predictability
    1. Many companies offer dividends, with industry leaders yielding around 3.97% over the past 5 years
    2. The sector average dividend yield is 1.76%
  2. The sector is cyclical in nature, with performance moving in direct correlation with economic growth
    1. Allowing investors to easily identify entry and exit points

Key Leaders of the industrial sector:

Boeing ($BA)

Lockheed Martin ($LMT)

3M ($MMM)

Nordson ($NDSN)

Emerson Electric ($EMR)

Cummins Inc ($CMI)

ETF for the industrial sector:

Industrial Select Sector

SPDR Fund ($XLI)

U.S. Aerospace and

Defense ETF ($ITA)

The Consumer Discretionary Sector

  1. The consumer discretionary sector consists of goods and services that are considered non-essential but desirable if available income is sufficient
  2. Types of consumer discretionary industries are durable goods, high-end apparel, entertainment, leisure, and travel
  3. Consumers tend to spend more on discretionary products in economic growth phases
    1. When the economy is strong, consumers earn more and spend more on consumer discretionary products
    2. When the economy is in a contractionary phase, consumers earn less and focus their spending more on the essentials

Investing in Consumer Discretionary Sector

Investors should rely on analysis of consumer confidence, interest rates, unemployment levels, and home sales

  • If the GDP is high and unemployment is low, it is a good sign for the sector
  • If interest rates are low, along with low consumer confidence, this is a bad sign for the sector

Key Leaders in the consumer discretionary sector :

  • Tesla ($TSLA)
  • Peloton ($PTON)
  • 3M ($MMM)
  • Etsy ($ETSY)

ETFs for the consumer discreationary sector:

  • Consumer Discretionary Select Sector SPDR Fund ($XLY)
  • Amplify Online Retail ($IBUY)

 

 

  • The Industrial Goods Sector
    ● The industrial goods sector consists of companies
    who produce capital goods used in construction and
    manufacturing
    ● They make and sell machinery, equipment, and
    supplies that are used to produce goods – rather than
    selling the goods directly
    ● Performance is largely driven by supply and demand
    for construction and engineering
    ○ Increases with economic growth
    ○ Declines during the economic recession
    o Aerospace
    o Defense
    o Industrial machinery
    o Tools and lumber
    production
    o Construction
    o Waste Management
    o Manufactured Housing
    o Cement and Metal
    Fabrication
  • Investing in Industrial Goods Sector
    ● Investors generally value the industrial goods sector for
    dividends and predictability
    ○ Many companies offer dividends, with industry
    leaders yielding around 3.97% over the past 5 years
    ○ The sector average dividend yield is 1.76%
    ● The sector is cyclical in nature, with performance moving
    in direct correlation with economic growth
    ○ Allowing investors to easily identify entry and exit
    points
    Key Leaders:
    Boeing ($BA)
    Lockheed Martin ($LMT)
    3M ($MMM)
    Nordson ($NDSN)
    Emerson Electric ($EMR)
    Cummins Inc ($CMI)
    ETF :
    Industrial Select Sector
    SPDR Fund ($XLI)
    U.S. Aerospace and
    Defense ETF ($ITA)
    The Consumer Discretionary Sector
    ● The consumer discretionary sector consists of goods and services that are considered
    non-essential but desirable if available income is sufficient
    ● Types of consumer discretionary industries are durable goods, high-end apparel,
    entertainment, leisure, and travel
    ● Consumers tend to spend more on discretionary products in economic growth phases
    ○ When the economy is strong, consumers earn more and spend more on consumer
    discretionary products
    ○ When the economy is in a contractionary phase, consumers earn less and focus their
    spending more on the essentials
    Investing in Consumer Discretionary
    Sector
    Investors should rely on analysis of consumer confidence,
    interest rates, unemployment levels, and home sales
    ○ If the GDP is high and unemployment is low, it is a
    good sign for the sector
    ○ If interest rates are low, along with low consumer
    confidence, this is a bad sign for the sector
    Key Leaders :
    Tesla ($TSLA)
    Peloton ($PTON)
    3M ($MMM)
    Etsy ($ETSY)
    ETFs :
    Consumer Discretionary
    Select Sector SPDR Fund
    ($XLY)
    Amplify Online Retail
    ($IBUY)
    The Consumer Staples Sector
    ● The consumer staples sector consists of essential products
    ○ Food and beverages
    ○ Household goods
    ○ Hygiene products
    ○ Alcohol and tobacco
    ● Products that people are unable, or unwilling, to cut out of
    their budgets, regardless of the financial situation
    ● The consumer staples sector is non-cyclical, meaning that
    it is always in demand, year-round, no matter how well the
    economy is performing
    Investing in Consumer Staples
    Sector
    Due to their low volatility, consumer staples are
    considered a key in defensive investing strategies
    ● Pros :
    ○ Earn steady dividends, steady earnings,
    and have low volatility or risk (this makes
    them a safe haven in recessionary
    periods)
    ● Cons :
    ○ Slow growth, limited highs, and
    underperform when interest rates rise
    Key Leaders :
    Coca-Cola ($KO)
    Pepsi ($PEP)
    Procter and Gamble ($PG)
    Kimberly-Clark ($KMB)
    Phillip Morris ($PM)
    ETFs :
    Consumer Staples Select Sector
    SPDR Fund ($XLP)
    Vanguard Consumer Staples
    ($VDC)
    The Communications Sector
    ● The communications sector consists of companies that make
    communication possible on a global scale
    ● Companies with primary focus on communication through phones
    or internet as well as content producers
    ● These companies created (and continue to build upon) the
    infrastructure that allows for our words or to be sent anywhere in
    the world
    ● The communications services sector includes industries such as;
    ○ Media
    ○ Video games
    ○ E-sports
    Investing in the Communication
    Sector
    ● This sector is generally perceived as
    a safe investment with high
    dividend yields
    ● This sector routinely outperforms
    the general market
    ● However, these stocks tend to be
    well established with slow growth
    over time
    Key Leaders :
    AtandT ($T)
    Verizon ($VZ)
    Zoom Video
    Communications ($ZM)
    Lumen Technologies Inc. ($LUMN)
    ETFs :
    Communication Services Select Sector
    SPDR Fund ($XLC)
    iShares Global Comm Services ($IXP)
    ● Made up of companies that provide basic amenities
    ○ Amenities include water, septic service, electricity, and
    natural gas
    ● The companies do well, but their business is heavily
    regulated by government
    ● Stable and provide steady dividends
    ● The utilities sector is broken down into 4 segments
    ○ Generators
    ○ Energy Network Operators
    ○ Energy Traders and Marketers
    ○ Energy Service Providers and Retailers
    The Utilities Sector
    Investing in the Utility Sector
    ● Utilities sector tends to perform well
    despite economic growth because there
    isn’t a change in demand for utilities
    ● Utilities is a regulated industry making it
    extremely difficult for competitors to enter
    the industry
    Key Leaders :
    Duke Energy Corp ($DUK)
    Dominion Energy ($D)
    Enterprise Products ($EPD)
    ETFs :
    Utilities Select Sector SPDR
    Fund ($XLU)
    Reaves Utilities ($UTES)
    ● Companies within this sector tend to be in one of two groups;
    ○ Manufacturers of healthcare equipment, or supplies
    ○ Operators of healthcare facilities and providers of
    services such as insurance
    ● The healthcare sector has factors that are almost inverse to a
    healthy America
    ○ If Americans remain healthy the healthcare sector is
    effectively being hurt
    ○ If Americans are unhealthy or there is a rise in disease, the
    healthcare sector does well
    The Healthcare Sector
    Investing in the Healthcare Sector
    Pros :
    ● Many healthcare stocks have exhibited excellent
    earnings and share price growth through the past
    decade
    ● Second-largest sector of S&P 500; 10% of NASDAQ
    Composite Index
    ● Diversification including growth stocks and defensive
    stocks
    Cons :
    ● Healthcare is highly regulated, drugs and devices can
    fail to obtain approval
    ● Regulatory changes can alter future growth
    ● Litigation risk when harm is caused to consumers
    Largest Players:
    UnitedHealth Group Inc. ($UHN) – largest health
    insurer in the world, stability anddividend , positive
    outlook
    Pfizer Inc. ($PFE)
    Abbive Inc. ($ABBV)
    Best Value:
    Bio-Rad Laboratories Inc. ($BIO)
    Biogen Inc. ($BIIB)
    CVS Health Corp ($CVS)
    Fastest Growing:
    Insulet Corp ($PODD) – Price: $240.65 , EPS Growth
    1,600%
    Horizon Therapeutics PLC ($HZNP) – Price: $69,68,
    EPS Growth: 1,360%
    Quidel Corp ($QDEL) – Price: $189.50, EPS Growth:
    1,300%
    Most momentum:
    $MRNA
    $QDEL, – $QDEL molecular diagnostics, also makes
    COVID-19 tests, In the third quarter they reported
    726% growth in adjusted profit to $5.78 per share.
    Key Leaders :
    Bio-Rad Laboratories
    ($BIO)
    Biogen Inc. ($BIIB)
    CVS Health Corp. ($CVS)
    ETFs :
    Health Care Select
    Sector SPDR Fund ($XLV)
    ARK Genomic
    Revolution ($ARKG)
    The Information Technology Sector
    • The technology sector is the category of companies whose
    main business relates to the research, development, and/or
    distribution of technologically based goods and services.
    • This sector contains businesses revolving around the
    manufacturing of electronics, creation of software,
    computers, or products and services relating to information
    technology.
    • Most of the products within this sector are of everyday use
    as well as routinely being updated and re-sold to existing
    customers
    Investing in the Technology Sector
    ● Pros
    ○ Software based companies sell a
    product that is essentially free to
    reproduce but expensive to buy
    ○ Easy to diversify within this sector
    ● Cons
    ○ Possibility of future regulation in the
    industry may negatively impact the
    stock value
    ○ Tendency toward overpriced or
    overvalued stock
    Key Leaders :
    Google/Alphabet ($GOOGL)
    Apple ($APPL)
    Amazon ($AMZN)
    BM ($IBM)
    ETFs :
    Technology Select Sector
    SPDR Fund ($XLK)
    Fidelity MSCI Information
    Technology ($FTEC)
    The Real Estate Sector
    ● The newest sector added to the SandP 500, added in 2016.
    ● Residential Real Estate
    ○ Focuses on the buying and selling of private non-business property
    ● Commercial Real Estate
    ○ Consists of properties used for business, including retail centers, hotels, or office
    spaces
    ● Industrial Real Estate
    ○ Consists of properties used for manufacturing, assembly lines, storage,
    distribution warehouses, truck terminals, and data centers.
    Investing in the Real Estate Stock
    Sector
    ● Pro’s
    ○ Generally viewed as sheltered
    investment with superior cash
    yields of (4-6%)
    ○ Multi-segmented with
    opportunity for diversification of
    assets within the sector
    ○ High dividend yields
    ● Con’s
    ○ Economic downturn can harshly
    affect this sector
    ○ Retail properties have seriously
    been hurt due to Covid-19
    Key Leaders :
    American Tower Corp ($AMT)
    Crown Castle International
    ($CCI)
    Simon Property Group ($SPG)
    ETFs :
    Real Estate Select Sector SPDR
    Fund ($XLRE)
    iShares Mortgage Real Estate